NESTLÉ S.A.

2010 KRAFT FROZEN PIZZA ACQUISITION CONFERENCE CALL

TRANSCRIPT
Conference Date: 7 January 2010

Chairperson: Mr James Singh

Chief Financial Officer
Nestlé S.A.

Mr Roddy Child-Villiers
Head of Investor Relations
Nestlé S.A.

Mr Brad Alford
Chairman and Chief Executive Officer
Nestlé USA

Disclaimer

This speech might not reflect absolutely all exact words of the audio version.

This speech contains forward looking statements which reflect Management’s current
views and estimates. The forward looking statements involve certain risks and
uncertainties that could cause actual results to differ materially from those contained
in the forward looking statements. Potential risks and uncertainties include such
factors as general economic conditions, foreign exchange fluctuations, competitive
product and pricing pressures and regulatory developments.
Roddy Child-Villiers, Head of Investor Relations, Nestlé S.A.

Slide 1 – Opening slide

Good afternoon, everybody, and Happy New Year to you all, and thanks very much indeed
for taking the time to join us today at such short notice. Our intention today is for Jim Singh,
who is calling in from Orlando, to do a short presentation on the Kraft pizza acquisition, and
then to have Brad Alford, CEO of Nestlé USA to join at the Q&A session. Brad is calling in
from the West Coast of America from Glendale. I, meanwhile, am here in Switzerland. I hope
that you
have been able to print out the slides or you have them on your screen.

Slide 2 – Disclaimer

If you flip to slide two, this is the usual Safe Harbour statement. As usual, I will take this as
read and pass the call directly to Jim, who will start on slide three. Thank you, Jim.

James Singh, Chief Financial Officer, Nestlé S.A.

Slide 3 – Nestlé Frozen Foods US

Thank you, Roddy, and good morning or good afternoon to you all. And like Roddy, I would
like to take this opportunity to wish you a very Happy New Year. I'm particularly happy to
have Brad Alford with us on the call today. Brad, as Roddy said, is Chairman and CEO of
Nestlé USA, under whose direct responsibility is our U.S. Frozen Food businesses.

As you are aware, Monday and Tuesday have been very busy for Nestlé as we announced
the exercise of the options for the rest of our holdings in Alcon to Novartis, and on Tuesday,
we announced the acquisition of Kraft pizza business in North America. What is different
from previous Nestlé transactions is that this time both the counterparties are involved in
other significant events which, along with ours, have engaged much attention of the financial
community.

With one day of a bit of a downtime, we believe it may be helpful to spend time to provide
some more specific information on the Kraft pizza acquisition and provide an opportunity for
management to answer some of your questions.

Before I begin the presentation on some further aspects of the pizza transaction, I would like
to make three points.

The first one is, Nestlé continues to make significant investments in both the developed
markets and the emerging markets, and we are very active in seeking out opportunities and
pursuing them wherever they may be. Our emerging markets represent a priority for M&A but
they are smaller and usually take longer to execute.

The second point is that the U.S. is a fantastic market for Nestlé and it remains a strong
performer, both in terms of organic growth and EBIT margin improvement. Annualized
organic growth averaged 6% during the last three years to 2008, with the U.S. Frozen Food
businesses at a similar level.

The third point is that the acquisition of Kraft pizza business is not – and I repeat, is not – a
signal that we are moving away from our focus on Nutrition, Health and Wellness.
There are two aspects to our Nutrition, Health and Wellness strategy. One is our specialty
nutrition business, and second is the constant R&D efforts to build nutritional platforms in our
other core Food and Beverage businesses. Pizza is consumed by almost every household in
America and lends itself to constant innovation along Nutrition, Health and Wellness
credentials, as we have demonstrated with Lean Cuisine and Lean Pockets.

Now if you go to slide three, I would like to begin the presentation by giving you a sense of
the scale and scope of Nestlé Frozen Food business in the USA. We are currently
participating in two of the three segments in the U.S. Frozen Food market with leadership
positions in frozen prepared meals and frozen sandwich and snacks.

In these two segments, our three billionaire brands – Stouffer's, Lean Cuisine and Hot
Pockets represent our participation with $3.8 billion in sales. Now in 2008, our Frozen Food
retail sales in North America was CHF4 billion, of which 3.8 billion was in the U.S., the
balance of 200 million is in Canada. Also during the last number of years we have
successfully acquired and integrated Chef America in 2002 and a smaller acquisition
Joseph's Pasta in 2005.

Slide 4 – Stategic Highlights

Now if we go to slide four. Pizza represents the third pillar. We believe there are three pillars
in the U.S. Frozen Food market. One is frozen prepared meals, the other one is sandwich
and snacks, and the third is pizza. And therefore, it makes great strategic sense, with good
financial rationale for Nestlé to pursue a leadership position in the category.

First of all, from a strategic point of view, pizza is a perfect fit with Nestlé's global Frozen
Food vision, which is to deliver tasty, convenient, premium, wholesome and nutritious foods
to consumers. In this transaction, we have acquired growing national brands with double-digit
growth over the last four years, outperforming the category, and therefore gaining share.

They are strong brands, and what is interesting, the growth is primarily in the premium
segment. One of the brands is now approaching 1 billion in sales. This acquisition also
allows us to achieve number one category positions in the U.S. and Canada. It's, therefore, a
great enhancement to our U.S. portfolio of frozen products, which in addition to food includes
a very sizable ice cream business, it in itself in a leadership position in the U.S. market.

Today, Nestlé lacks a meaningful presence in pizza and we believe this acquisition will
enhance our Frozen Food performance in the U.S. and Canadian markets as we will now be
able to compete effectively in all three segments in the Frozen Food category. Achieving
number one Frozen Food pizza position worldwide is important for Nestlé.

Today, in Europe we have about CHF1 billion under our Buitoni and Wagner brands.
Combined sales and a global business, with this acquisition, will be in excess of CHF3 billion,
or pretty close to the same amount in U.S. dollars. In addition to that, in the U.S. in particular,
this acquisition will allow us to complement our existing Ice Cream, Frozen, direct store
delivery distribution system. By merging the Frozen direct store delivery system of pizza with
Ice Cream, we believe we can develop a very effective and efficient route to market.
Additionally, we believe this segment lends itself to a very active R&D innovation and
renovation program. The acquisition of Kraft pizza business allows us to include a significant
number of highly qualified nutritionists and scientists currently focused on R&D on pizza.

Lean Cuisine and Lean Pockets demonstrate Nestlé's ability to execute Nutrition, Health and
Wellness in Frozen, and we believe pizza is another opportunity.
Slide 5 – U.S. Total Pizza Industry
If we go to slide five, I think one point I would like to make is that Nestlé is determined to
bring increasing healthy choices to over 70% of the U.S. households that buy frozen pizza.
And as I said, we have demonstrated that we can deliver on our Nutrition, Health and
Wellness strategy by improving the wholesome consumption of pizza.

On slide five, if you look at this chart, it looks a bit complex at a glance, so I'll explain. Overall
the pizza market in the U.S. was $37 billion in 2008. If we look at the blue boxes, they more
or less broadly define the three main segments of the market, which is restaurant prepared
which is 29 billion, that includes mostly take-home and in-restaurant consumption; consumer
prepared, 4.5 billion; and food service, an additional 3.7 billion.

The Kraft pizza business operates in the consumer prepared frozen market, which is 3.8
billion, but with significant upgrades over the years in terms of taste, freshness and a mix of
high-quality ingredients, Kraft has been able to win over consumers from the other segments,
as demonstrated in this chart.

As you can see, the segment has enjoyed excellent growth further manifested in 2009, in
part due to the recession. It is interesting to note that pizza has 95% penetration of
households, while frozen pizza is at 71%, so there is opportunity for further penetration of
frozen pizza. The pizza category across segments provide a significant opportunity for Nestlé,
both at retail and in accelerating the development of our out-of-home business through
Nestlé Professional.

Slide 6 – Kraft Frozen Pizza Business Highlights

If we go to slide six, like most categories, great consumer insight and an active R&D program
defines success and Kraft has done an excellent job in combining these capabilities to build
strong brands.

If you look at the pie chart, which clearly sets out the price or the value segments, you will
see here that the premium and super-premium parts of the portfolio represents 70% of the
total business and 30% in terms of mainstream and value.

If you look at it the way the business has developed Kraft acquired Tombstone and Jack's in
'86 and '92. But then through innovation it introduced DiGiorno in 1995; it in-licensed from the
California Pizza Kitchen, which is a restaurant chain, and introduced that brand at retail in
1999. And in 2000 it introduced Delissio in Canada and Delissio today is a market leader in
Canada. So, clearly, they have been able to define the value points that are attractive for the
consumer, including upgrading the products, but also through a constant program of
innovation and renovation, which fits very neatly into Nestlé's strategy.

Slide 7 – Financial Highlights

If we go to slide seven, here it is clear that the category has experienced significant growth
over the last four years, averaging 10.7% annually. Of course, this was enabled by the
current economic conditions, but we are convinced that the business is capable of delivering
organic growth rates in line with the Nestlé longer-term expectation for Food and Beverage.
As a consequence, our acquisition model includes a more conservative growth outlook than
is currently experienced.

Slide 8 – Business Overview

If we go to slide eight, I think this is where the business overview gives some interesting
pointers for this segment. First of all, as we have shown on the two charts before, the multi-
tiered product offer from value to super-premium, covering various price points and
consumer needs, allows the business to gain in excess of 70% of U.S. household
penetration.

The important aspect of the growth is that super-premium and premium are growing at 8.4%,
and even in 2008 you see that the change is in favor of premium and super-premium
products. And that's basically the upgrades I referred to before in terms of taste and
ingredients and other attributes of the pizza offering that is being constantly innovated and
renovated. The business represents the strongest frozen pizza franchise in the U.S. with
some leading brands. As I said, DiGiorno is the leading brand in the U.S., and Delissio is the
market leader in Canada.

Slide 9 – Financial Highlights

If we go to slide nine, I think here, this acquisition represents attractive financial metrics for
Nestlé, and therefore, I'll just take a couple of minutes to highlight some key points here. First
of all, the transaction is 3.7 billion in cash. The structure of the deal is an asset purchase
which allows for the full tax deductibility of the amortization of the acquired assets, which
include goodwill and intellectual property. The net present value of the related tax benefit,
that is tax benefits related to the structure, is $0.5 billion. So when you look at the multiples in
terms of sales on a pre-tax basis of 1.8 times sales – 2009 estimated sales of $2.1 billion.
And before tax, 12.5 times EBITDA, 2009 estimated EBITDA.

But then, you consider the $0.5 billion in tax benefits run from the structure of the deal, the
multiple – the EBITDA multiple estimated for 2009 is 10.8 times. The margins are also
attractive, 2009 EBITDA margin will be about 14%, and in addition to that we have identified
synergies that will be realized over a number of years; 147 million, 80% of which is based on
cost, primarily in the route to market area.

So in the first full year of acquisitions, this business would be enhancing for Nestlé. In other
words, it will not be dilutive to our underlying earnings. And we will reach our Nestlé cost of
capital within four years. Now the deal is subject to regulatory review, but we expect this to
be closed during the course of 2010.

Slide 10 – Nestlé Acquisition Strategy

So if we go to slide 10, the acquisition of the Kraft pizza business satisfies Nestlé M&A
criteria on all key metrics. First of all, we talk about leadership positions of strong brands.
Number one position in the U.S. and Canada, both markets combined representing almost
50% of the worldwide frozen pizza sales.

The second point was on value-added, and it's clearly value-added innovation and
renovation driving growth over the last five years. With brands in leadership positions, we
believe that the integration will not be difficult and we are acquiring a highly competent core
of management that will help in this process.

RIG, cash flow and earnings enhancing, as I said before, and of course within the Nestlé
financial capabilities we can clearly do this with existing facilities. So, again, this acquisition
meets Nestlé criteria.
I
In conclusion, this more or less completes my presentation on what I believe is a very
compelling acquisition for Nestlé. So let's go to Q&A and Brad is here to respond to
questions on the business.
Q&A Session

Questions on; Synergy opportunities

Cadbury situation

David Hayes, Nomura:

Two questions if I can. So just on the synergies that you've outlined in the release of 7%, can
you talk a little bit more about whether that's from cost or revenue? I guess with that in mind,
just give us a little bit more detail about the overlaps of these businesses in terms of sales
force, key customers and distribution, just to see whether most of that synergy is in cost and
whether there's a revenue synergy opportunity on top of that potentially?

And then secondly, just following up on the release that you made alongside the Kraft
acquisition, in terms of Cadbury, just to talk about were you required by the Takeover Panel
to make a release to basically say whether you were going to be involved or not?

And can we just understand whether you could still be involved indirectly with that transaction?
So hypothetically speaking, shall we say, do you feel that you have precluded yourself from
maybe buying brands from one or another party that might get involved with the Cadbury
transaction in terms of financing it?

James Singh:

I will answer your last question first, then I'll give you some colour on the synergies and I'll
hand it over to Brad to give you his point of view.

First of all, as you know anything that involves any one of the parties in the Cadbury situation
is of great interest to the U.K. Takeover board. And we have had a discussion with them and
I think that we are responding to really be out of the discussion with the Takeover board.
I hope our presentation, our press release, is very clear that we have said that we are not
interested or involved in any aspect of the bidding process for Cadbury.

With respect to the other aspects as to what can be or what is not possible, what is possible,
I think that's very speculative, and given the nature of this transaction I would not comment
on those.

Now on the synergies, we said $147 million, 80% of which will be cost-based, so I will hand
that over to Brad.

Brad Alford, Chairman and Chief Executive Officer, Nestlé USA:

Let's start on the cost side, and I do want to talk about the growth synergies a little bit too.
But, starting on the cost side, I think what you've got to look at first is that when you add up
all the frozen businesses that we will have in the U.S., we have $8 billion worth of Frozen
business. So not only our Food business, but including our Ice Cream business, it’s a large
business that is going through primarily a dedicated channel – a dedicated distribution
system, the Frozen system.

When we looked at what the opportunities were in that area, the cost of frozen distribution,
as is obvious, is higher than ambient, we saw some good synergistic opportunities there
across the totality of the portfolio. The businesses combined will spend almost 900 to $950
million in terms of distribution. And we think that there's an opportunity to cut that back.
The other part, as I mentioned, is the growth synergies, and we think as we looked at the
distribution patterns across all the different pieces of business, the different ways that all
these businesses get to market, touch different points of distribution, and there is some parts
that each business do not touch of the others.

We think that if we take the best of all the different ways we go to market, we can
dramatically expand distribution across all of our ranges of products. And I think Jim's point
of household penetration of frozen pizza being 71% – with household consumption being at
95% of pizza, what that means is there's 24% of households out there that are not buying
frozen pizza, but they consume pizza, and that's roughly one-third of the frozen pizza buyer
base. So we think there are huge opportunities if we can put the product within arm's reach
of these other households that aren't getting it.

And then I think the other part of growth synergy is the range of brands we're now going to
have in terms of Frozen Foods, with our brands and the Kraft pizza brands you have some
interesting brand-stretching opportunities that we think we can get some growth out of.

David Hayes, Nomura:

Now that might be...

Brad Alford::

In terms of crossover.

David Hayes, Nomura:

So you're sort of talking lean pizza, or a sort of from a Lean Cuisine range, etcetera, that kind
of crossover of brand?

Brad Alford::

Exactly. Or, can you take the DiGiorno brand into more sandwiches, which we have
expertise in, in our handheld business. So I think looking at the product forms with the
different brands that we'll have, there's a lot of opportunity to play them across one another.

Questions on; Cost of synergies

Cost of capital

Martin Dolan, Execution:

Can you tell us what the cost of the synergies will be, and also what cost of capital you've
used in your calculation?

James Singh:

I would say the operating costs for implementing the synergies will be equal to one year of
the annualized synergy, so it's about 150 million. These are the operating costs to implement
the synergies.

The cost of capital, Martin, you know Nestlé cost of capital is about 7 – 7.5% thereabout; so
that's the cost of capital that we use.

Martin Dolan, Execution:

Okay, if I can just get a follow-up, because I'm a little bit confused – if you take the starting
EBIT of 275 and add on the synergies of 147 and taxed at 33%, you get about 285 million
after-tax, which would look to be straight off the bat about 9% of 3.2, or 8% of 3.7? Four
years seems a long way out for the crossover.

James Singh:

Well, you don't really put all the synergies to the bottom line. Some of it will flow to the bottom
line; some of it will be reinvested in the business. So, we believe that the business
performance will, through the synergies, improve the margin structure year after year once
we have implemented it. So that's the way we have approached it, Martin.

Martin Dolan, Execution:

What kind of retention rate of synergies do you assume?

James Singh:

It could be about half and half.

Questions on; Trade spend in category

Maintaining margins with increased price competition

Thomas Russo, Gardner Russo & Gardner:

I have two questions, Jim. The first is the reported difference between the gross revenue and
the net revenue. I've read that it's 2.1 billion gross, but 1.6 billion net. What is the – is this
typical of the category, and what opportunities do you have to tighten up that disparity?

James Singh:

It's not really a disparity. I think – I'll ask Brad to comment a little on that, but basically the
difference here is U.S. GAAP versus IFRS, as we report it in Nestlé. So there isn't, it's not a
gap depending on how you look at it. One is U.S. GAAP, the 1.6, 1.7 is U.S. GAAP, and the
other is 2.1 based on our accounting. Our objective is to grow the top line. I mean, this is
what Brad was talking about. So there isn't a gap as such.

Thomas Russo, Gardner Russo & Gardner:

I guess the question is, is that a typical amount of trade spending, that $0.5 billion? Does the
category have an unusual burden of trade spending that you might be able to address?

Brad Alford:

The difference is obviously the trade spend in terms of the two comparisons you had
there, and the trade spend is a little higher than what we see in our more traditional Frozen
Food businesses. And we think that we haven't built it in, it has to be looked at as we go
through the integration, but we do think there's an opportunity there.

Thomas Russo, Gardner Russo & Gardner:

Thank you. And then Brad and Jim, the second question is, Kraft's business has grown, even
during a time when you would think that there was increased price competition from the
grocery channel as well as from the spillover effect of cheap home-delivery products. How
have they been able to grow while maintaining attractive margin in the face of those two
areas of competition?

Brad Alford:

Tom, that's a good question, and I think what you've got to look at, and I think this is part of
the opportunity, is that the total pizza business in the US, as we said, is $37 billion. The take-
home, or the grocery take-home business, is around seven, roughly 10%. That means
there's $30 billion worth of business out there. And where we see the big advantage is, if you
look at the price of a home-delivered pizza versus the price of these businesses, it is a better
economic value for the consumer to buy one of these pizzas at the grocery store versus
delivery. So we think we have an advantage there.

And then, we've also in some of our due diligence done some product testing work of the
Kraft product against some of the big delivered pizzas. And we think we have a product that
is pretty good. So the value proposition for the consumer, and I think why it's done so well in
this economic environment, is that it's a better value than delivery and at the end of the day
it's an as good or better product.

Thomas Russo, Gardner Russo & Gardner:

Thank you. So the last point is innovation around product quality has delivered a product
that's superior?

Brad Alford:

Yes.

Questions on; Pricing over the past three years

Phasing of synergies

Pierre Tegner, Oddo Securities:

I have two questions. The first question is, could you give us an idea of the pricing effect you
had during the past three years and the like-for-like growth of the Kraft pizza business since
2007? That's the first question.

And the second question is, is it possible to have the phasing of the synergies you expect for
the next five years? Will it be 20% a year, or what is the phasing, and can we expect first of
all cost synergies or revenue synergies?

Brad Alford:

Let's talk first about this selling price. The selling price has roughly gone up 6.5 to 7% over a
three-year period of time, so if you looked at '09 versus '06. And in terms of how do we see
the synergies phasing in, we roughly see 50% of those coming in by year two, and we hope
to achieve 100% of them by year four.

Pierre Tegner, Oddo Securities:

Concerning the price effect, is only 6.5% to 7% price effect from 2007 to 2009 or is it?
Brad Alford:

It's over that three-year – '06 to '09, over that three-year period of time, it has been that kind
of increase. Not an annualized.

Question on; Breakdown of pizza business for 2009

Deborah Aitken, Bryan Garnier:

Looking at slide eight, where you have the breakdown of premium, mass and value over a
five-year period, is it possible to get an idea of the super-premium, mainstream and value for
2009, in relation to one of your questions where you talked about pizza delivery prices versus
home-cooked - to put that into perspective, and look at what's been happening for 2009 on
the value and mainstream side in particular?

Brad Alford:

Give me a second on that one. I'm pulling a sheet now just to look at it just for the last year.
And the premium piece -

James Singh:

Slide eight of the presentation, has an evolution over the years; not exactly over the last five–
but you can see 2003 and 2008.

Deborah Aitken, Bryan Garnier:

Yes, compounded growth rate – I'm just wondering what it would be the mood has been
through 2009, given the environment, and just tying that into your comments on the pizza
delivery pricing.

Brad Alford:

Yeah, I've got the '09 numbers here. The premium was up eight, the value was up six, and
mainstream was relatively flat.

Deborah Aitken, Bryan Garnier:

To what do you link the high rise in the value, or the higher rise in the premium, versus the
value? Is that driven by innovation through 2009?

Brad Alford:

Yes, absolutely. That's primarily California Pizza Kitchen and there's been a lot of innovation
in that piece of the business over the last few years. And I think it might also – I'm
speculating now, but it might be that you have a consumer that was eating out, and is looking
for a nice way to trade down, I guess is the way to put it. To have a restaurant-quality pizza
at home.

Questions on; Excess capacity in DSD systems

Implications of Alcon disposal
Julian Hardwick, RBS:

You've highlighted the opportunity on the distribution side. I wondered if you could just help
us with what's the scale of capacity utilization you have in Dreyer's and on the Kraft pizza
business, how much excess capacity do you have in both the DSD (Direct Store Delivery)
systems at the moment?

And, secondly, I wondered if Jim would just entertain a question on the implications of the
Alcon disposal. What sort of interest rate should we be modelling for the portion of the
proceeds which are not being utilized for share buyback and for acquisitions?

Brad Alford:

There is excess capacity in both systems. What we hope to do is, through expanded
distribution, use those systems. So in terms of giving you a number, I don't have that one.
Obviously, with our Ice Cream business, we have a more seasonable business than what we
have in our pizza business. Ice Cream by nature has to have some excess capacity built in.
The two businesses are somewhat countercyclical, so we're looking at the overlap on that,
but a lot of that needs to be worked out in integration.

James Singh:

On Alcon, as you are aware, we're not going to get the proceeds until maybe the end of the
first half. But essentially, we still have a fair amount of debt. To the extent that we can pay
them down, we would. So we will avoid the cost of the debt. And the excess liquidity, we are
going to be targeting somewhere between a three and a five-year return on the excess
liquidity, whatever those rates are. So three to five-year returns, that's what we will be
targeting.

Julian Hardwick, RBS:

And in terms of your debt paydown, what sort of effective interest saving would you expect?

James Singh:

Well, our interest rate's running at about 3%. Our commercial paper is way below that, but
we have debt in other markets that run at significantly higher rates because of inflation. So I
think this year our cost of debt will be somewhere between 2 and 3%.

Julian Hardwick, RBS:

Okay. Thank you very much.

Roddy Child-Villiers, Head of Investor Relations, Nestlé S.A. :

Jim, I think Julian's question is going to the dilution issue.

Do you want to perhaps talk about that a bit?

James Singh:

Are you asking about the dilution of EPS, Julian?

Roddy Child-Villiers:
I think that's where he was going with those questions. Perhaps you could expand a bit on
that.

James Singh:

I think given the timing of the flows, both the Alcon inflow and the outflow of the acquisition of
the pizza business and our investment program that we're working on now, we don't believe
that there will be a dilution in our underlying EPS for 2010.

Questions on; Out-of-home opportunities

Positioning of premium pizza products

Caroline Price, Caprice Management:

Hello, my first question is, did I understand correctly during the presentation portion, did you
mention anything about the out-of-home segment as it relates to this acquisition? And if so,
can you expand on that?

And then the second question is, just if you could elaborate on how you positioned the pizzas
in the super-premium and the premium categories? It must be hard to just say, well this
tastes better, it's presumably the quality of the ingredients or the number of ingredients.
Maybe you could just help me understand what makes a pizza premium in the frozen
category.

Brad Alford:

Let me start with the food service opportunity first. Kraft has a very small food service sales
with their pizza businesses right now and we did not build any synergy in at this point with
that, but we do think there might be another upside opportunity there. And I think not so
much in the restaurant or the commercial side of food-service, but primarily in the non-
commercial side of food-service, and that will be something that we'll look at through
integration.

In terms of how do you define super-premium versus premium and what does that mean.
The way we looked at it is that super-premium has higher-quality ingredients. And I don't
know how familiar you are with the California Pizza Kitchen restaurants, but when you look at
the ingredients that are on those particular products, they tend to be higher level ingredients
than what we'd see in a traditional pizza, and they are unique varieties when you see them,
too. So we think that's what gives it the premium appeal. And then, also, some preliminary
research we did through integration is that the consumer believes that those products are
fresher and less processed.

Then on the more mainstream pizza business, if you go from super-premium down to
premium and talk about premium, we think one of the things that the DiGiorno brand has that
really sets it apart from a lot of other pieces of business is the rising crust technology that
Kraft brought to the market with DiGiorno. It gives you a very nice crust.
And how do we determine whether that's better or not? Through the due diligence, we saw
consumer in-home testing of the Kraft products versus the competitive set – I'm not going to
identify which particular pizzas – home-delivered pizzas were in that. But the consumer
testing shows that different varieties of the DiGiorno product are either parity or
better than what are the big delivered pizzas out there.
Questions on; Advantages and use of DSD in Frozen category
Confectionery within Nestlé

Eric Katzman Deutsche Bank:

I guess, two questions; one to Brad on the Frozen category. Maybe you alluded to it before
with the excess capacity on the DSD, but do you see the frozen aisle becoming more of a
DSD business? Are the retailers kind of interested in that, given the turns?
And do you see this as kind of giving you a competitive advantage versus ConAgra and
Heinz and I guess Schwan's in the U.S. business? And then the second question to Jim,
maybe given your comments about not being interested in Cadbury, how should we think
about the – confection within Nestlé overall?

Brad Alford:

I think your question on the Frozen Food section is a really good one. Let me start at more of
a macro level and then drill down to what I think your specific question is. From what we hear
from retailers, the Frozen Food section is a critical part of the store for them, and it makes
sense. I mean if you look at the demographics out there, fewer and fewer people know how
to cook, more and more people are time compressed. You have more dual-working
households. Frozen Food, and particularly frozen meals and prepared frozen products, are a
good solution to the consumer in that environment, and we see that environment continuing
or getting more advantageous to us over time, as do our retail partners. And they're making
more and more investments in the Frozen Food capability either in-store or in their supply
chains. So I think it's a piece of business that all of us see as an opportunity.

Now where does DSD fit into that? I think DSD is not necessarily a universal solution for all
products and all accounts. And what I think you have to look at is the dynamics of a particular
piece of business and how DSD fits with that. So let me take Ice Cream as an example. With
Ice Cream, different flavours sell in different neighbourhoods, even within the same chain.
And with the DSD opportunity, you have the opportunity to change the flavour profile in a
particular store to match a particular local market. The flexibility it gives you is incredible.
I think it also applies on the pizza business. And I think also – and for categories that have
high impulse buys on them, and pizza is actually one of those as is Ice Cream, and that the
sales can be dramatically affected by changes in weather, changes in promotion, changes in
displays, that DSD does give you a competitive advantage to react to the marketplace
that our other competitors may not have.

And now, to say that we're going to walk away from warehouse distribution is not true. I do
think warehouse distribution fits on some of the other parts of our business. And then, you've
also got to look at geography. Sometimes, geography has a better play for DSD than other
parts of the country. So as I said earlier, we have got a lot of detailed work that we've got to
do in integration to basically build a hybrid system that maps where the best opportunities
are for the individual pieces of business.

James Singh:

To get back on your other question. First of all, you have heard it said before, up to the end
of 2008, our confectionery business reached CHF12.2 billion in sales. In 2008, it had organic
growth of 8% with an EBIT margin of 13.1%.

I would say today, our business is performing competitively across the world. 70% of our
chocolate sales are from local brands. Four to five brands and 110 trunk lines have top 10
positions in the global market, in different markets around the world. We have 152 products
representing 77 brands that are either number one or number two in their markets.

So when you look at our business, we believe we have a sufficient size and scale in different
dimensions of the business that will allow us to continue to compete effectively, regardless of
what happens in our industry segment.

We have also said that we will continue to look for bolt-on acquisitions to continue to
reinforce our competitive positions in the market. And there may be opportunities from time
to time, but these are always going to be smaller deals and very geographic specific, rather
than large global brands. So that is our orientation at this stage, and really we don't see the
need to make any dramatic change in that strategy.

Questions on; Details of the acquisition deal

Share buyback

Edward Reszetnik, Ontario Teachers' Pension Plan:

Just a couple of things. One is on, maybe you can give us a discussion on the timeline or
how this pizza deal came to be? I'm just trying to figure out who approached who and all that.
The other is on your share buybacks announced at the CHF10 billion. Is there a reason you
didn't go higher, is it like something to do with the Swiss law? Maybe you could discuss about
that. And in regards to that, is there a net debt level target that you've – that you can tell us
that you've set for the company?

Brad Alford:

In terms of how the pizza deal came about, Jim laid the groundwork for it in his presentation.
We've looked at the Frozen Food business obviously for years and we think we understand it
really well.

Meals was our first entry into that and then we bought the Chef America business, which was
Hot Pockets to get into the sandwich piece. And we've always felt that pizza was kind of the
third leg of the stool, and we've looked at that for a number of years. And as Jim mentioned,
globally, that's a business that we're interested in. We've got a CHF1 billion business in
Europe. We think we have some competency in that area, so we've been interested in that
business for a number of years.

We have tried to capitalize on it with some of our own brands. We have a relatively small
presence with what we do in our own brands, and we've had a lot of respect for the Kraft
businesses for a number of years and we approached them a number of months ago. The
Kraft folks said they'd talk a little bit as long as it was just us. They felt that we would be a
good buyer. And one of the reasons we thought that it might be a good time to buy is, if you
look at their portfolio this is the only Frozen Food business that they have. They had tried
South Beach Diet, a meals business, I think it was two or three years ago and just recently in
the last year got out of it. And that was kind of a signal to us that Frozen Food may not be
core to them. And if you look at their global footprint, this is the only place that they have
Frozen Food. So a number of months ago we started discussions and it took us a while to
pull it together, but that's how it all got started.

James Singh:

When we had our press conference in October, when we announced the third quarter results,
we basically said from a balance sheet point of view we believe that over time where we are
in terms of credit quality, which is a gold standard in any industry today, is something that we
should strive for over the years, over the longer term.

The 10 billion share buyback program, I think you need to interpret that in terms of the
additional share buyback we have to do under the existing program, which is at least another
5 billion to do this year, and then we will start the 10 billion program. So I would say that at
least over the next 24 months, over the next two years, we are going to be buying back
CHF15 billion of share buyback. So it is a considerable number and it's more or less in line
with the average we have done over the last two or three years.

Edward Reszetnik, Ontario Teachers' Pension Plan:

Is there any Swiss laws precluding you from doing more?

James Singh:

Well, I think there is room, depending on the timing of course. I think 10 billion in any one
year or anything between 8 and 10 billion is not easy to do because, of course there is this
law with respect to the 10% of the capital, but there is also a convention that you don't buy
more than a certain percentage of the shares per day.

So I think we're trying to be realistic in terms of what we can achieve, given the way we have
operated over the years and the way the markets have practiced their sole share buyback
program to the extent that I'm aware. So we feel very comfortable that over the next two
years, we can do 15 billion, which is, it can be 7, 8 billion a year. And you have seen, last
year we demonstrated some flexibility, given the performance of our cash flows, that allowed
us to accelerate the program. We started with a 4 billion sort of target, and then we would
likely end up closer to 7 billion.

Questions on; Projected growth rate and CapEx

Potential nutritional improvements to products
Increasing household penetration

Christian Andreach, Manning & Napier:

Just a couple of questions going back to the question on the WACC IRR crossover. Kraft's
pizza numbers over the past couple of years have probably benefited from trade-down and
trade into the home. What are you projecting out in the acquisition economics for the top line?
And also, what are you seeing as CapEx for the business roughly?

Brad Alford:

Top line is, and I think Jim mentioned it earlier – we do believe that the business has
benefited from the economic downturn, and as you mentioned, consumers trading down. We
do not see double-digit growth for the outgoing years.

So we think the growth rate will be less than its been in the last three years but we think it will
be accretive to the Nestlé Group. So we're somewhere in the 6% and over range, but less
than double-digits. And CapEx we have got budgeted somewhere between 1 to 2.5% of
sales going forward.

Christian Andreach, Manning & Napier:

Just two other quick ones. Is just so I can maybe catch a glimpse of the Health and Wellness
angle here, do you have any just rough idea – I know it's obviously extremely early on – but
rough ideas of what sort of health improvements you think you can make to the product?

And then, you talk about 70% penetration, driving that higher. What percentage of people do
you think just don't want frozen pizza? They're just too ingrained in behaviour of ordering it,
that type of thing?

Brad Alford:

Let me start on the Health and Wellness piece first. I think Kraft had already started to do
some of that. I mean all of us see the same trends in the industry. So you see a lot of people
moving in that direction. And I'll talk what they've done and then what I think we can do more.
But Kraft had already started to put portion control into the business, and they had already
started to use some better – I will call it better-for-you ingredients. They have looked at some
all-natural stuff. They have whole wheat in some of the items. So the portfolio is already on
that kind of path.

But where I think we have opportunity, we're going to continue some of that work that Kraft
has already done. But I think the extensive R&D that we have gives us opportunities to
reduce sodium and reduce fat and potentially taking some of the ingredients that are less
good for you and lowering those or putting some alternatives in there. And I think, two, you've
got to remember that the basic ingredients in this are pretty simple and things that people
see as wholesome, whether that's cheese, wheat and tomato sauce and certain toppings.

So I think you can look at the ingredients and talk about what we can do with some of those
ingredients in terms of making them fresher or having more particulate in them that will make
them seem more wholesome to the consumer. So that's the early thoughts on it. But as you
say, we haven't taken that all the way, a lot further. And now to be honest, I forgot the second
part of your question.

Christian Andreach, Manning & Napier:

The 70% penetration rate, what percentage of households don't want frozen pizza?

Brad Alford:

I hope none. I don't know. We don't have any information on that. I think as long as the
product quality is better, as good or better than what the delivery is, why wouldn't they want
that? Particularly, if you have a favourable price structure. So I really can't give you any
feedback on that. But just intuitively, I always believe a better product sells, and that's the
premise for a lot of our product development work globally with our company. We try and get
a 60/40 competitive advantage against what's out there. So if we can make the product taste
better and then have some kind of nutritional advantage to it that we talked about earlier, I
think it becomes a very good alternative to try and get that extra 24% of household
penetration.

Questions on; Nestlé’s capabilities in Frozen Foods

Risk from private label competition
M&A strategy for US

Pablo Zuanic JP Morgan:

Brad, to start with you first. If you had to characterize or grade Nestlé's capabilities in frozen,
how would you describe that? And the reason I ask that is that, yes, it seems to be a great
acquisition. Yes, Kraft apparently has done great with innovation. But when I look at what
Nestlé has done, at least based on the Nielsen data we get, Nestlé in frozen dinners has not
been doing so well. Stouffer's, Lean Cuisine down about 6 - 7%, Hot Pockets down 8%, your
pizza business down around 14%. Heinz and ConAgra in their conference calls, go out of
their way to say that Nestlé in frozen dinners is mostly doing promotions, and not much else.
Of course, that's what they would say, I imagine. But it would be good to know you're taking
over, this apparently very well-run business, so how good is Nestlé really in frozen? That's
one question.

And the second one, thinking a little bit more about the frozen aisle in general, Wal-Mart is
implementing Project Impact. If I'm not wrong, they are making a big push in private label
frozen pizza in their stores, which is something that they had not done before. Does that
represent a risk for the category?

And more in general, Frozen, when I compare Frozen in Europe with the U.S., although there
is more private label in Europe compared with the U.S. across the board, Frozen would be
an area where there is significant more private label in Europe than in the U.S. And I just
wondered again where there is a risk on Frozen private-label in the U.S. on the growth and
whether Nestlé is making this big bet in Frozen and there could be significant risk. Then I
have a follow-up for Jim, but if you can answer that please, thank you.

Brad Alford:

Let me start with, how we are doing in Frozen. I think that you've got to look over the long
term. Let's start with the fact that we are dominant number one in all of those categories that
you talked about, whether it's meals, nutritional meals or sandwiches, we are the dominant
player. And if you look at – I think it was 10 years ago on nutritional meals, ourselves and
ConAgra were really neck and neck. That gap has been dramatically increased.

Now, in the last year, I'd say, on nutritional meals in particular, we have had some issues
there. I don't think we have innovated as much as we possibly could have, and I think you'll
see some things in the next 12 to 18 months that will turn the tide on that. And then on the
complete meals, we've actually done pretty well. And I think single serve is the one that you
quoted there in terms of market share. But if you look at our multi-serve, it has done very well.

And so in total, our Stouffer's business we're actually fairly happy with during the economic
downturn. I think we do have some issues on our Lean Cuisine business. And then on
handheld, or Hot Pockets, that was a Nielsen number I think you quoted. Our business on
handheld has got a much broader distribution and does much better in some of the non-
measured Nielsen channels. And our handheld business did very well from a shipment
standpoint in '09. And I think that sandwich business fits very well with the current economy.
It's basically, you get a sandwich for $1. So to me how would I grade ourselves, I tend to look
at it over the long-term. We're the dominant number one and the player we will continue to do
so.

In terms of how – what risk do I see from private label? The private label in the meals
business is only 2.7%, I think if I remember. It's less than three, if I remember right. And in
this business – in the pizza business, it has done better during the economic recession. I
think it's grown almost 20% during the period. But I think where the opportunity is for a
company who has the ability to renovate and innovate, they are the ones that are going to
win.
As I said earlier, this category is going to continue to grow. Frozen Food fits with consumer
demographics going forward. And the companies that are going to win are the people that
have the ability to innovate and renovate and bring category expertise to the section, which is
what the retailer wants.

So I think our track record in renovating and innovating in Frozen Food is very good. I think
that the pizza brands that we're acquiring lend themselves very well to continued innovation
and renovation. And I think we'll be fairly insulated against private label, but it's one we've got
to keep an eye on. I continually talk to our folks here that I think the big question coming out
of the recession is going to be, what is the consumer behaviour as people come out? And
we've got to keep a good eye on that and we've got to be cognizant of what we need to do to
add value to our products and to continue to make them relevant to the consumer, no matter
what the economic conditions are.

Pablo Zuanic JP Morgan:

And if I may, just one follow-up for Jim. Jim, you said the U.S. is a fantastic market and
obviously your M&A strategy over the last 10 years would clearly demonstrate
that – Ice Cream, Water, Frozen Foods, and Baby Nutrition and so on. It's already close to
32, 33% of your sales, if I'm not wrong, including the pizza deal. And apparently you will
continue to look for other opportunities to strengthen your portfolio there. And obviously you
don't want to tell me what you're going to buy there, but could you say you already have
topped your M&A strategy in the U.S., no need to beef up the portfolio anymore, or are there
areas where you see significant opportunities? I'm not going to mention the obvious ones
from I think most people's point of view. But if you could make some comments on that, that
would be useful, Jim.

James Singh:

Pablo, as I said earlier, is that we continue to invest in the developed markets, including the
U.S. and in the emerging markets; wherever we believe that there are opportunities to
advance our business strategically and profitably. So if there are opportunities in the U.S.
that fit that criteria for the company, we will continue to do that. It is an excellent market and
continues to be, and I believe for many, many more years to come.

I also said that the emerging markets is a priority for the M&A activity. And we have
increased our activity in terms of M&A searches or relationship with local organizations to
help us identify opportunities and pursue them. And we have done some during the course of
2009, which we will elaborate a little more when we announce our results.

But they are not major. They are not the size of the ones we have just announced. They are
likely going to be smaller and it does take longer to do deals in emerging markets. Having
said that, I mean, we are not discouraged. As you know, we are a very global company. We
have the capabilities on the ground, and wherever there are opportunities where we can
work together with other folks, we are willing to do that. So it is not one versus the other. We
are building our business on a global basis.

Questions on; Credit rating and net debt

Dividend policy
Buyback rate

Jon Cox , Kepler:

I wonder if I could just follow-up with Edward Reszetnik's questions earlier to Jim. Just on
what you're aiming for in terms of the credit rating. Jim, I think you are on the record as
saying AA is where you want to stay. You don't necessarily want to go to AAA, and you don't
want to lose the AA. I wonder if you can just give us – just confirm that, and then maybe give
us an idea where net debt would stand as a result of that. My assumption, it's probably
somewhere between 15 and CHF20 billion.

Second question, you seem to be mentioning there that now there seems to be an
understanding that you won't do more than 10% of your daily free flow. I think there were a
few weeks in the run-up to Christmas, actually you were up to about 20%. Has there been a
bit of a change in policy there, like you'll only do up to 10%? That's the question on that
one.

And just bearing in mind everything you've said there, I'm just trying to get a feel for the
dividend. My understanding was last year's or 2009's dividend was really a one-off, as in
there was a special payment because of the financial situation and you cut back on the
buyback. Are we to understand now maybe that the dividend is a way – is a weapon
maybe you can use to actually soak up some of that cash, and maybe we should be looking
more at maybe a dividend to put the balance sheet on a more efficient footing?

James Singh:

Yes, Jon, just on the AA, AA-plus rating, that's where we are now. I think over the longer
period, that's where we think we will be comfortably. There are going to be short
periods of time where we will be slightly above that or slightly below that. But that's our long-
term objective.

Could you clarify the point on the 15 to 20 billion?

Jon Cox , Kepler:

Yes, I'm just trying to work out myself, if you're aiming for a AA rating, then that's probably
consummate with a net debt of around 15 to 20 billion, I'm guessing, because if you go below
10 billion net debt, then you're probably going to get a AAA again. That's all I'm – my
guesstimate. Obviously, if you can give us any clarity on that, that would be appreciated.

James Singh:

I think over time that your projection is right, but sometimes we'll be above that and
sometimes we'll be below that. But that's as I said, the AA-plus is where we want to be over
time. Now, coming back to the dividend, we did say last year, you know we increased the
dividend by 17% – 17.3 or 17.4. But a year before our dividend increase by 15.2, 15.3%, and
the year before that 12.17%.

So we are committed to a dividend policy. How much we will pay and we announce will
depend on the recommendation and the approval of the board and we will be in a position to
give you more flavour on that when we announce our results in February. So I hope that
answers your questions there.

Jon Cox , Kepler:

Just a follow-up then on this on the buyback line, you don't want to go above 10% of daily
liquidity. Is that sort of a new policy? Because I think, as I say, in the last few weeks of last
year, you were up to 20% on some days and I wondered, did the Swiss Ex say anything to
you and now maybe there's a new policy that we're not going to go above that 10% line?

James Singh:

I think that was more or less for short-term in order to get the objective we announced a bit
late in the year. But on a normal share buyback program, we want to stay within a range of
about 10, 15% of yearly trading volumes.

Questions on; Timing of the acquisition and factors involved

M&A budget

David Hayes, Nomura:

Just in terms of the timing of the Kraft pizza deal. Obviously it's pretty broad what you say
here sometime in 2010. Can you just be a bit more specific about when in the year, and also
what the factors to consider are in terms of whether it's sooner rather than later?

And then, finally, just following up on some of the comments you've made about acquisitions
and seeking acquisitions and then opportunities coming up. I mean this budget that you have
been talking about of circa CHF3 billion per annum, do we just take that that's kind of the
small deals in the emerging markets that you talked about today? And as things come up like
this Kraft deal and maybe other things come up through opportunities moving forward, they
are sort of extra to that? They're exceptional, and therefore, the 3 billion is irrelevant in that
sense?

James Singh:

On the M&A piece, I would say that if you go back, sometimes we get too caught up with
numbers. In 2007, 2008 and 2009 we did not spend the 2 to 3 billion. We would have
liked to have done this deal at the end of last year, but as these deals do, they do extend
from period-to-period and we were fortunate to be able to get it done early in the year.

But I would say that we will continue to look for bolt-on acquisitions. And they may run us
another 2 billion, but we are not going to stop looking for bolt-on acquisitions or doing M&A
deals because we will spend 3.7 billion on pizza.

So I think that's a reasonable way of looking at our activities going forward. Whenever there
is an opportunity – we have said this before – whenever there is an opportunity that allows us
to advance our business, we are going to do that. But we always look at what we are doing
today. Our guidance is based on what we know.

David Hayes, Nomura:

And in terms of the timing of the transaction closing? Is there anything that we should
consider, why it might take longer rather than sooner? It seems pretty straightforward
generally.

James Singh:

I think this has to go through the regulatory process in the U.S. and most likely Canada. But
it's a process and we – both parties, Kraft and ourselves, have committed to respond as
quickly as possible and to try and manage the closure as early as can be. But we really can't
– we don't want to give you a specific timeframe. We believe sometime in the middle of the
year or soon after we should be able to complete this deal.

David Hayes, Nomura:

But there's no regulatory issues that you're worried about or anything like that? It seems like
there shouldn't be, but there's nothing we should be considering that might take it out to a
longer time?

James Singh:

Not anything material that is unsolvable.

Questions on; Use of the Ice Cream DSD system

Improving in-store merchandising

Andrew Lazar, Barclays Capital :

Just a quick follow-up on some of the DSD comments. I'm just curious, have you or do you
currently use any part of your Ice Cream frozen DSD system, even if it's just the in-store,
feet-on-the-street piece of it, to help gain some advantage in the broader frozen space,
obviously, for your frozen entrées? And I'm curious, if not why that is, and if this current
transaction potentially changes that at all?

Brad Alford:

Yes, we do, and we are ready to distribute some frozen meals into channels that are difficult
for us to get into. So as an example, just to give you one specific is the drug store channel.
We do distribute our Lean and Stouffer's brands through the Ice Cream DSD to get into a
couple of drug store accounts.

And we think that there is, as we've looked at this, much bigger opportunity. So your question
is a good one. That's what we're thinking, and what we've seen as we look across all the
different businesses is that we see different opportunities for the different brands in all the
different methods of distribution.

Andrew Lazar, Barclays Capital :

Okay, and then just a follow-up to that. Is there something or anything unique to the frozen
case that, I guess, would really benefit more than maybe some other areas in having some
more attention, if you will, than the space currently gets from like an in-store merchandising
standpoint?

Brad Alford:

Absolutely. What makes the space unique is that it's limited and it's expensive and it has high
traffic. So from a retailer's perspective, they want to get good return out of that. And so how
do we drive more people into that area and how do we get them to buy more when they're
there? And those categories dynamics are things that we understand already in our Ice
Cream and Meals business.

And I think we haven't gotten into all the detail specifically of that of what Kraft is doing, but
like I said earlier, that's the only Frozen Food business they have. We believe our expertise
in this category is better than theirs and that a combination of all the products that we will
have gives us an opportunity with the retailers to ultimately sell more product to the
consumer.

End of Q& A Session

James Singh

Thank you very much. And first of all, I want to thank everybody for taking time to participate
with us this morning on this conference call. It was very helpful to have Brad on the call, and
I'm sure that after this call you have a much better understanding of the pizza business in the
U.S. and Canada, and surely why Nestlé has made this acquisition which is not small, but it's
very meaningful to our business in North America. Thank you for your time and we look
forward to speaking with you by the end of February. So thanks again.

END OF CONFERENCE CALL